Delek Group Ltd. (TASE: DLEKG) controlling shareholder Yitzhak Tshuva is again bringing his Canadian real estate business to the Tel Aviv Stock Exchange (TASE). He is attempting to raise up to NIS 260 million (C$95 million) in a bond issue for Elad Canada Realty, which manages, holds, and develops real estate in Canada, mainly in Toronto and Montreal. The company has earmarked the proceeds from the bond issue for upgrading its existing portfolio, increasing its holdings in a Canadian real estate investment trust (REIT), and rescheduling debt. Publication of a rating for the debt is expected later.
The draft prospectus indicates that Elad Canada plans to use C$28 million of the proceeds to replay a line of credit bearing interest of nearly 10%. C$50 million more is designated for recouping the equity allocated to the acquisition of the Galleria property in Toronto, which contains the area on which a multi-stage residential, commercial, and office real estate project is planned.
Elad Canada plans a three-year shekel bond issue backed by net surpluses in projects, most of which have been sold. Repayment of most of the principal is scheduled for the third quarter of 2022, while repayment of 30% of it is slated for the first quarter of 2020.
According to the figures presented by the company, Elad Canada currently owns building rights for 4.5 million square feet (420,000 square meters) of residential, office, and commercial real estate in various development stages, of which 1.5 million square feet (140,000 square meters) is being used for 1,500 condominium units for sale. Elad Canada says over 80% of these units have already been sold.
Elad Canada also holds 19% of the shares in a public Canadian REIT, which Elad Canada says holds "dozens of income-producing properties, including office and industrial properties in key locations in Canada and the US." Elad Canada's CEO is Rafael Lazer. Elad Canada is backing its bond issue with a lien on the surpluses of projects with a 1.5 collateral-debt ratio. The main collateral is the Emerald City project in Toronto, in which the company is building nine residential buildings for sale and rent with a total of 2,000 apartments, together with a community center, a pools area, and municipal infrastructure.
Revenue increases six-fold in 2017
Elad Canada's 2017 financial statements show that the company enjoyed an almost six-fold rise in revenue from C$32 million in 2016 to C$181 million in 2017, primarily thanks to the sale of an apartment building and recognition of profit from occupancy of another building. The increase in the value of the company's Galleria property helped Elad Canada report $138 million in its property revaluation item, pushing its net profit for the year up to $155 million, compared with less than $13 million in 2016 and less than $7 million in 2015.
Elad Canada also reported a steep rise in management and general expenses to $6 million, compared with a little over $1 million in 2016, due to a provision of more than $5 million in accordance with its legal advisor's assessment in respect of claims filed against the company involving a project completed in Cite Nature - a project that contained eight residential buildings close to the Montreal Olympic Village.
Elad Canada's revenue soared 34% to $8 million in the first quarter of this year, and its net profit neared $6 million, compared with a $1.5 million loss in the first quarter of 2017. This result was supported by a profit of nearly $8 million on its investment in the REIT.
Progress is residences in Toronto and Montreal
Elad Canada is part of the Elad Group, through which Tshuva has operated in North America since 1992 and which has a variety of businesses. Its known assets in the past include the Plaza Hotel in New York, which it acquired in 2004, renovated, converted mostly to luxury apartments, and sold in 2012.
Elad Canada began its activity in Canada in 1997 and underwent a strategic refocus in 2014 that included the sale of most of its income-producing properties "and a focus on development of residential buildings in high-demand areas in Canada, together with investment in income-producing properties with upgrading development or operational potential."
In its current development activity, Elad Canada focuses on the development of residential neighborhoods (master plan communities), including residential buildings, commercial space, and public space. According to figures presented by the company, it has completed construction of and conversion of 4,500 housing units in 13 projects in Canada to date, mainly in Toronto and Montreal.
In 2010-2011, Tshuva held an IPO on the Toronto Stock Exchange for Elad Canada Inc., the indirect owner of the company now holding the bond issue, which was delisted from trading in 2013 following an offer to purchase.
At the end of 2016, it was learned that Tshuva was interested in joining the wave of American-Jewish real estate developers that have held issues on the TASE for some of their real estate in North America in recent years. He held an NIS 220 million bond issue for the Elad National company on the TASE.
Although he incorporated the company in the Virgin Islands in preparation for this move, as the other foreign real estate developers also did, and also published a shelf prospectus and a supplementary prospectus for the issue (which revealed that his partner in the company's main properties was real estate tycoon Yakir Gabay), the move eventually fell through.
Published by Globes [online], Israel business news - www.globes-online.com - on July 9, 2018
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